PA ANALYSIS: BlackRock's Little disruption could bring a lot of success
From PA ANALYSIS Feb 22 2012 BY: Gary Shepherd
, Editor
, Portfolio Adviser
Whatever BlackRock might say publicly, the removal of Mark Lyttleton from the UK Fund he has managed for over 12 years will be interpreted as further evidence of the cutthroat nature of asset management.
To be fair to Lyttleton, his status as a poster boy for absolute return remains intact as he continues, for now at least, to focus his efforts on the pairs trading strategy employed with some success (on a longer-term basis at least) in the £1.17bn UK Absolute Alpha Fund. The thinking behind the change may also be that it gives him more time to work on the £872m Dynamic UK Fund.
As Esther Armstrong pointed out yesterday, the £488m BlackRock UK Fund has underperformed the IMA UK All Companies sector over six months, one year, three years and five years and has ranked in the third or fourth quartile over all those timeframes.
Perhaps Lyttleton knew the writing was on the wall when co-manager Nick Little was given the co-manager role back in September. Nevertheless, the managers have already stated this year that they were comfortable with the balance of the fund between selected cyclicals, quality long-term growth companies and more defensive earnings streams.
Underperformance in January was common across many UK funds as higher beta stocks led the way and defensives lagged. But fundamentally, it is hard to see any drastic changes that Little can take immediately to improve fund performance. The largest holdings include British American Tobacco, Vodafone, BG Group – Neil Woodford has also lagged recently with these in his top 10, and it’s hard to see him being removed as manager of Invesco Perpetual Income.
Immediate downgrade
I don’t have the resources to delve much deeper into UK Fund’s holdings, though it is telling that OBSR has today downgraded the fund from AA to A in its ratings despite saying it was comfortable with Little’s investment philosophy and process.
FE Analytics says Lyttleton has tended to perform better in rising markets over the past 10 years (a ratio of 83.3%), so perhaps he should have been afforded more time given how robust the FTSE has looked in recent months.
Lyttleton is undoubtedly a talented fund manager, and the good news for his investors is that he’s still around to spend more time focusing on his other mandates. Little on the other hand is relatively inexperienced in the retail market with plenty to prove, so this could turn out to be a decision that works well for both men, and hopefully their investors.